The Mayfair Department Store in Davenport, Iowa is trying to determine the amount of sales lost while it was shut down during July and August because of damage caused by the Mississippi River flood. Sales data for January through June follow.
Sales ($1000s)
January 185.72
February 167.84
March 205.11
April 210.36
May 255.57
June 261.19
a. Use exponential smoothing, with a = .4, to develop a forecast for July and August. (Hint: Use the forecast for July as the actual sales in July in developing the August forecast.) Comment on the use of exponential smoothing for forecasts more than one period into the future.
b. Use trend projection to forecast sales for July and August.
c. Mayfair's insurance company proposed a settlement based on lost sales of $240,000 in July and August. Is this amount fair? If not, what amount would you recommend as a counteroffer?